PERSPECTIVES

Fintech takes a bite out of theBig Apple

Maria Gotsch is President and CEO of the Partnership Fund for New York City, the investment arm of the Partnership for New York City. In addition to leading the Fund’s investment operations, Maria has spearheaded the creation and operation of a number of the Fund’s strategic initiatives, including co-founding the FinTech Innovation Lab with Accenture.

What is the FinTech Innovation Lab, and why was it created?The FinTech Innovation Lab is a 12-week mentorship program for early- and growth-stage companies in the financial services sector. We give them the platform they need to develop, test and prove their value propositions to the world’s leading banks, which volunteer their time and effort to the program. After several years in New York City, the program has been expanded to London, Dublin and Asia Pacific.

At the Partnership Fund, we focus on investing in low-income neighborhoods and large civic projects in New York City. We also look for opportunities to catalyze the growth of new tech sectors where the city has a competitive advantage.

In 2010, when you still had to explain what financial technology or “fintech” was, we and our partners at Accenture identified it as a logical sector for New York. The city had a burgeoning tech sector and the largest concentration of financial institutions. However, when we asked chief information officers (CIOs) and chief technology officers (CTOs) at six major New York City banks where they look for technology, all of them said the West Coast and Boston. No one was looking in their own back yard.

The FinTech Innovation Lab was envisioned as a way for large New York financial institutions to support the growth of enterprise or business-to-business (B2B) technology in the city, and identify cutting-edge technologies for banks.

How has the program impacted industry?
New York City has become a fintech leader in the United States. We are attracting venture capital and entrepreneurs who are partnering with individuals with deep domain expertise in financial services. The program started with 10 sponsoring financial institutions and now there are nearly 30, spanning insurance, money management, hedge funds and payments. We also work with more than 25 experienced entrepreneurs, many of whom were part of New York City’s first generation of successful fintech companies and all of whom can provide mentoring and advice for building a scalable tech company.

As a result of our efforts, dozens of the leading financial institutions in the world are now engaged in fintech. A growing number of banks are seeing the value in being more innovative and entrepreneurial, and are creating their own fintech labs or initiatives. In fact, many have begun thinking about themselves as technology companies. You hear Lloyd Blankfein say that “Goldman Sachs is a technology company” all the time. That’s a radical shift, due in large part to bank engagement with the entrepreneurial community.

It’s no surprise that fintech is one of the fastest growing sectors in the city, and that it’s growing faster in New York than in other places. Between 2013 and 2014, deal value in New York City grew by 32 percent to reach a new high of $768 million.

What are the top trends you’re seeing from program participants?
During the first few years of the program, big data, cyber security and mobile banking technologies were key areas of focus. Over the past two years, distributed ledgers and blockchain have risen in importance. Digital Asset Holdings from last year’s class went on to successfully raise the largest Series A round in the northeastern United States after the program.

For 2016, key themes include blockchain and artificial intelligence. On June 23, we will go public with the companies in this year’s class at Demo Day.

What can financial services firms learn from fintech companies?
Fintech companies have prompted major financial services firms to open themselves up to innovation. Firms are no longer looking exclusively inward or outward to identify innovative ideas and products, but rather looking both inside the company and beyond for that competitive advantage.

Fintech companies are meeting consumers’ banking needs in new ways, including robo-advisors, and peer-to-peer lending and payments. Many are focusing closely on the needs and preferences of millennial consumers. That has forced banks to be nimble and innovative, which is good for consumers.

How is New York City’s fintech sector different from those in other areas, including Silicon Valley, London and Asia?
New York has now surpassed Boston as the second-largest entrepreneurial center in terms of venture dollars invested ($7.3 billion versus $6.1 billion in 2015). The city should be—and is well on its way to becoming—the leading center for enterprise technology, particularly in traditional sectors, such as financial services, media, healthcare, fashion and retail. In New York, entrepreneurs have the unique ability to combine deep domain expertise and knowledge of real industry problems with cutting-edge technology.

Some of the world’s biggest banks—and their key decision makers—are headquartered here. As a fintech company, you are in close proximity to your customers and the people who will ultimately decide whether to purchase your services, partner with you or perhaps one day buy your company. You can hop on the subway and, within 10 or 15 minutes, be at any major global financial institution. That's just not the case in many other markets.

What are you most proud of with the Labs?
I’m proud of the number of jobs that Lab graduates have created and the amount of financing they have raised post-program. Our 31 graduates have gone on to conduct 107 pilots, raise close to $300 million in financing and create more than 200 jobs. Moreover, about 40 percent of participating companies have been founded or led by women or minorities. By regularly bringing together entrepreneurs with new ideas, seasoned entrepreneurs, venture capitalists and bank executives, the Lab has played a key role in creating a more visible and better connected fintech ecosystem in New York City.

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